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18 Jul 2009

Small is Beautiful -- The Review

EF Schumacher, a British economist, published this book in 1973 from essays that he wrote in prior years. I have heard about it for years and just now read it. It's truly a wonderful book, full of thoughtful -- yet revolutionary -- ideas of how to structure a sustainable economy. I give this book my HIGHEST recommendation to anyone interested in the economics of development, environment, natural resources and community.

The 297 page book has four parts:

The Modern World has essays on sustainability and scale.

Resources discusses land, education, energy and technology

The Third World gets very deep into the similarities and differences between economic systems in "our world" and a poor village.

Organization and Ownership discusses different ownership structures and how their incentives (dis)serve man and society.

Schumacher's perspective is informed by Gandhian and Buddhist concepts of scale, i.e., the appropriate scale for a business or a job is the scale that an individual can understand and enjoy. As such, he runs directly against the "bigger is better" philosophy of mainstream economics that argues in favor of increasing scale until marginal costs begin to rise. Further, Schumacher goes against the idea that profits, per se, are the only goal. As a free-market economist, I have strong doubts about these ideas; as an environmental economist concerned with sustainable systems, I have to agree that his ideas are more sensible than those that pursue profits at all costs.

If these ideas had displaced mainstream economics (to the extent that Gordon Gekko said "small is beautiful" instead of "greed is good"), we would be living in a very different world today. Schumacher is certainly aware that he is fighting an uphill battle, but his analysis never veers from good economics. He does not hope that people will just "do the right thing." Instead, he pays attention to incentives and how they can be changed to accomplish his goals.

This book is full of wisdom, and the writing sparkles. Although you should read it to experience it yourself, I will leave you with this passage:

We are always having all sorts of clever ideas about optimizing something before it even exists. I think the stupid man who says "something is better than nothing" is much more intelligent than than the clever chap who will not touch something unless it is optimal.

Bottom Line: Economists study how humans use scarce resources. Their decisions are motivated by philosophies of why they want to use those resources. This book discusses those decisions with an important question: Is the goal more consumption or happier people? Since consumption does not appear to make us more happy, we have to ask what does, and Schumacher answers that question by noting that people living in communities and doing meaningful work are happier.2014 update (after using the book to teach): Schumacher has a lovely vision for how a bottom-up system of production by the masses would work, but he does not describe a strategy for dealing with people(s) who prefer large and ugly, e.g., China, the US, Canada, et al. This weakness puts his advice into the aspirational rather than pragmatic section of my bookshelf.

I read the book when it was first published and I thought it was wonderful and fuzzy. However, the economy he used as his model of perfection was Burma, and we all know how that turned out. Real life turns out to be tougher.